Consumers are feeling the pinch, but Pets at Home and Telecom Plus look well placed to weather the storm.
Their shares jumped 7% and 11% respectively after results-day performances that contrasted sharply with the experience of investors at AO World (LSE:AO.), where supply chain and inflation pressures triggered a second profits warning in two months.
While some of AO's issues have also affected Pets at Home, these have been outweighed by tailwinds created by strong growth in pet ownership during previous lockdowns.
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Today's half-year results showed revenues up 18% to £677.6 million and underlying profits up 77.2% to £70.2 million. There was no change to full-year guidance, but the shares jumped 30.4p to 488.6p as the retailer indicated its performance will be towards the top of City expectations.
Aided by self-help measures, the business now sees a pathway to £2.3 billion of customer revenues in the medium term compared to the £1.4 billion achieved last year.
Chief executive Peter Pritchard said the business “has never been more robust”. He added: “Our pet-care strategy continues to deliver, we continue to take market share and improve spend per customer and the benefits of our investment in capacity and capability are really starting to deliver.”
Today's results continue a run of upgrades that has added 50% to broker Liberum's 2022 profits forecast since May last year.
Analyst Adam Tomlinson believes shares can reach 575p, adding: “A larger pet population gives us confidence that Pets' strong growth trajectory will continue over the medium term.”
He sees the 2022 price/earnings multiple of 19.4 times as being more than justified by the company's high quality growth, balance sheet strength and potential for special dividends.
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An interim dividend of 4.3p is due to be paid on 7 January, representing a 72% jump on the previous year. As well as M&A opportunities, Pets at Home has previously pledged to consider special dividends or share buybacks as a potential use for surplus cash.
Telecom Plus maintained its dividend at 27p a share for payment on 17 December after reporting a resilient performance in the six months to 30 September, with revenues 6% higher at £371.3 million but adjusted profits £1.5 million lower at £26.2 million.
However, the biggest factor in today's 11% share price surge concerned the ongoing energy crisis after the company disclosed it signed over 15,000 net new customers in October as the industry consolidates. This compared with a rise of 3,289 to 660,700 across the first half.
The company does not advertise and instead relies on 'word of mouth' recommendations by existing customers, including from the 48,000 partners who make money by telling their friends and family about Utility Warehouse. Services also span broadband, mobile and insurance.
Telecom Plus is now forecasting an increase in customer numbers of 10% or 66,000 in the second half of the financial year, for an annualised growth rate of 20%. It is sticking by previous guidance that adjusted profit and dividends will be around £60 million and 57p a share respectively in the current year.
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Higher energy revenues and continued growth in the number of services taken should then feed through to a “material increase” in profits and cash generation in the 2023 year.
Peel Hunt said: “The energy market has fundamentally changed and we believe Telecom Plus business model is perfectly positioned. Bulb is the latest supplier to fall and more are likely to follow, providing a huge opportunity for Telecom Plus.”
The broker increased its pre-tax profits forecast by 8% and raised its target price from 1,450p to 1,650p, compared with today's level of 1,444p after a 148p increase.
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